Finance

Those Complaining About Tax Reform Don’t Know Much About History

We hear the same tired complaints today that Presidents John F. Kennedy, Ronald Reagan and George W. Bush faced when they were trying to jump start the economy: Tax cuts will help only the wealthy and lead to a massive decrease in federal revenue.

It wasn’t true in the 1960s, the 1980s or the 2000s, and it isn’t true today.

A new report from Americans for Prosperity and Freedom Partners details how tax cuts across the decades have boosted federal revenue while growing the economy, providing a model for today’s lawmakers to emulate.

In the 10 years following the Kennedy tax cut –proposed by JFK in 1962 and enacted in early 1964, just months after Dallas — federal tax receipts increased by $283 billion. The decade following the Reagan tax cuts of 1981 — fully phased-in by 1983 — revenue rose by $400 billion. In the 10 years after the Bush tax cuts, tax receipts climbed by $227 billion.

Revenue grew because the tax cuts stimulated economic growth. In the five years following the Kennedy tax cuts, average quarterly gross domestic product was 5.2 percent; for Reagan it was 5 percent; for Bush, 3 percent. As a point of comparison, average GDP growth following the 2009 economic stimulus averaged just a tick over 2 percent. Tax cuts work better than spending boondoggles to create economic growth.

That growth was reflected in the job market. The half-decade following the Kennedy tax cut saw 9.3 million jobs created; during the Reagan years, the number was 11.7 million; for Bush, 6.9 million. In the five years of the Obama recovery, only 2.2 million jobs were added.

More jobs mean more disposable income: $2,243 in the five years post-Kennedy, $2,715 post-Reagan, $2,524 post-Bush. In the five years following the 2009 stimulus, per capita disposable income rose a paltry $798.

These numbers debunk the notion that bold tax cuts reduce revenue or increase deficits over the long term. Each time in the last half century when a president and a Congress have worked together to reduce tax rates, the result has been more federal revenue, not less.

Deficits and the debt have been exacerbated not by declining tax receipts, but by spending increases that have outpaced revenue growth.

While history proves that tax cuts work, it is not so kind to the “tax cuts for the rich” trope.

In each of the cited instances when rates were cut for the highest earners, those at the top of the income bracket ended up bearing a larger share of the tax burden. In 1983, the top 10 percent of taxpayers paid 50 percent of all federal personal income taxes. By 1989, after the top rate had been cut several times, the top 10 percent were paying 56 percent. By 2003, that had risen to 65 percent. In 2007, four years after the Bush tax cuts, the highest earners were paying 70 percent of all federal personal income tax.

Stretch the data over longer periods of time and apply it to the highest of the high earners, and the trend is even more pronounced. In 1980, the top 1 percent paid 19 percent of federal income taxes. By 2014, their share had more than doubled, to 40 percent.

Tax cuts work because of basic economics, common sense and human nature. Let people keep more of the money they earn and they’ll be more productive, which means they’ll earn more and put that money to productive use, creating more income subject to tax.

Tax cuts done right produce more federal revenue and shift the tax burden to those most able to pay, precisely the opposite of what the doomsayers claim.

We should not let myths guide policy, especially if it means settling for the “new normal” of 2 percent growth, stagnant incomes, an ever-growing government and deficits as far as the eye can see.

Pro-growth tax reform will make the system fairer and simpler, produce more revenue, and provide a jolt to the economy that will benefit all Americans. History proves it.


Mary Kate Hopkins is deputy director of federal affairs at Americans for Prosperity. Michael Decker is senior research analyst at Freedom Partners Chamber of Commerce.

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